Industry faces vehicle electrification challenges

The automotive industry, lacking an infrastructure to produce the electric vehicles revealed at the Detroit auto show, is poised to invest heavily in lithium-ion battery research and manufacturing.

General Motors' decision to manufacture the battery pack for the Chevrolet Volt extended-range electric vehicle in Michigan marked the first of what could be a series of significant battery investments by the world's major automakers.

Toyota said it would sell 500 plug-in hybrid Prius vehicles later this year in a concerted attempt to gauge the market's reaction to electric vehicles and to study battery performance.

But Toyota's announcement underscored lingering concerns about the reliability, safety and durability of lithium-ion batteries in cars. Toyota engineers are eager to see how the plug-in Prius battery reacts in actual road conditions.

That several automakers simultaneously unveiled major electric vehicle development projects, however, showed that executives are confident they can overcome the biggest battery hurdles.

"I'm very heartened," said University of Michigan engineering professor Ann Marie Sastry, who is collaborating with General Motors to retrain engineers on battery technology and has started her own auto battery company, Sakti3.

"You really can't walk the (auto show) floor without seeing some form of electrification," she said. "Just about every display you see has some element of electrification."

While batteries used in plug-ins will add considerable up-front expense, the likelihood of federal tax incentives and other measures to make them more affordable will dramatically lower the costs of operating vehicles, said David Cole, chairman of the Ann Arbor-based Center for Automotive Research.

"You're basically looking at something that can redefine the whole concept of powertrains for automobiles," Cole said. "The reason that the industry is turning the enthusiasm on is that the economics look like they're going to be there."

The focus on electric vehicles comes despite the fact that the U.S. has virtually no lithium-ion battery manufacturing capacity. For years, the Korean, Japanese and Chinese markets have dominated that space.

GM said it would invest in a Michigan-based lithium-ion Volt battery production plant in cooperation with Korean firm LG Chem, parent company of Troy-based Compact Power. The location was not announced, and the deal is contingent on state and local tax incentives still being negotiated. GM is also widely expected to open a 31,000-square-foot battery testing facility in Warren.

GM cited its existing relationships with the University of Michigan, LG Chem, A123Systems, Hitachi Power and Orion Township-based Cobasys as critical to a collaborative effort aimed to developing improved lithium-ion technology.

"We're building a roster of battery suppliers and academic experts from around the globe and leveraging their specialized abilities to develop battery chemistries and cell designs," GM CEO Rick Wagoner said.

Chrysler is being forced to address questions about its long-term viability as a company, but CEO Bob Nardelli said the company is well positioned to survive and commercialize industry-leading electric vehicles.

"We are not cutting back on new product introduction, new technology and innovation, as evidenced here," Nardelli said. "I don't think there's another company in the United States or in the globe that has quite as big a portfolio of electric vehicles as you see here today."

The auto show marked the entry into the electric vehicle business for Ford, which said it would release a battery-powered commercial vehicle in 2010 and a battery-electric small car in 2011 developed jointly with Canadian auto supplier Magna International. It also plans to build two next-generation hybrid-electric vehicles, one of them a plug-in, in 2012.

Ford plans to lower costs through partnerships with suppliers like Magna, which in October acquired Rochester Hills-based hybrid systems supplier BluWav Systems. Another key component of its strategy: basing all four of its planned hybrids and battery-electric on the Fusion and Focus platforms.

"One of the elements of improving costs is scale, more volume," said Derrick Kuzak, vice president of product development. "And so by electrifying global vehicles it helps drive volume. I think that's a distinguishing factor of our strategy."

Bruce Belzowski, assistant research scientist for the University of Michigan's Transportation Research Institute, said the automakers are aggressively pursuing electric vehicles in part because it "gives the U.S. the opportunity to be (more) energy independent." He said diesel cars, for example, which are common in Europe, are more fuel efficient but still based on petroleum.

"Even if you went diesel and made vehicles more fuel efficient, you'd be using less gasoline, but you'd still be using oil in some form," Belzowski said. "You'd still be dependent."

At the same time, however, the nation is largely dependent on foreign lithium-ion batteries for use in devices such as laptop computers and cameras.

Auto executives are increasingly reaching a consensus that investment in auto lithium-ion battery manufacturing capacity is critical for the nation. Executives and industry observers are adopting the concept that the country can't afford to "trade dependency on foreign oil for dependency on foreign batteries," as GM Vice Chairman for Global Product Development Bob Lutz put it.

"If you outsource it again, you end up making yourself vulnerable again to companies outside your country. It's just like oil all over again," Belzowski said.

But Prabhakar Patil, CEO of Compact Power, said it isn't yet realistic from a business perspective to produce lithium-ion cells in the U.S. because of the lack of a supply base.

"That's something that is evolving, and I have to give the state of Michigan a lot of credit for what they are trying to do to support that," he said. "That's something we continue to evaluate, and when the time is right we are open" to manufacturing cells locally.

Still, it's difficult for auto companies to muster the will to invest in battery manufacturing in a weak economy - and particularly with gasoline prices hovering below $2 a gallon.

That means it's likely that the federal government will have to help boost the market for electric vehicles by offering aggressive tax incentives to consumers.

"You cannot have the combination of a very weak economy with a high unemployment level, the world's cheapest gasoline and accelerated sales of high-technology cars," Lutz said. "Those three things don't go together."